Fitch Places Allergan's Ratings on Negative Watch

CHICAGO--()--Fitch Ratings has placed the ratings for Allergan Inc. (Allergan), including the 'A+' Issuer Default Rating (IDR), on Rating Watch Negative. The rating action stems from Valeant Pharmaceuticals International Inc.'s (Valeant) unsolicited offer to acquire Allergan for approximately $45.6 billion. The rating action applies to $2.1 billion of outstanding Allergan debt. A complete list of ratings is provided at the end of this release.

KEY RATING DRIVERS

Valeant's proposed offer comprises a cash component of $48.30 and an equity portion of 0.83 shares of Valeant common stock per each Allergan share. The offer price represents a premium of around 30% from a closing price of $116.63 on April 10, the day Pershing Square Capital Management LLC (Pershing Square) acquired an ownership stake of more than 5% of Allergan. Pershing Square currently holds 9.7% of outstanding Allergan common shares.

Valeant has committed financing for up to $15.5 billion to fund the cash payment upon completion of the transaction. Valeant management anticipates net debt of approximately $28 billion upon closure of the acquisition. If the offer is accepted by Allergan's Board of Directors and shareholders, Fitch expects Allergan's ratings would fall to below investment grade.

Significant uncertainties exist that could affect the rating levels of Allergan or a merged entity including:

--Allergan's acceptance of an offer, either current or increased, from Valeant or another bidder.
--Level of incremental debt (and pricing of the debt) used to form the new entity.
--Execution of management at the combined firm to capture potentially significant synergies.
--Actions taken by Allergan to satisfy equity investor interests lacking an acquisition transaction.

RATING SENSITIVITIES

Negative pressure would arise from Valeant's acquisition of Allergan under the present terms of the offer. Fitch sees pro forma gross debt leverage at the combined entity of more than 4.5x, a level more consistent with a below-investment grade credit rating. Negative pressure would also stem from significant share holder-friendly actions if Allergan stays independent, including leveraged share repurchases or special dividend, such that leverage elevates to and remains above 1.5x.

Fitch does not currently expect positive rating action given the unsolicited acquisition offer from Valeant. However, the rating may be positively affected by a higher-rated bidder acquiring the company over the near term.

On a standalone basis, Allergan's promising organic revenue and earnings growth outlooks backstopped by a solid intellectual property position provide stability to the current ratings. In addition, Fitch sees the company generating consistent margins given its ability to flex its operating cost base in the event of demand pressures stemming from secular headwinds.

Fitch has placed the following Allergan ratings on Rating Watch Negative:

--Issuer Default Rating (IDR) 'A+';
--Senior unsecured debt 'A+';
--Bank loan 'A+';
--Short-term IDR 'F1';
--Commercial paper 'F1'.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
--'Rating Pharmaceutical Companies - Sector Credit Factors' (Aug. 9, 2012);
--'Corporate Rating Methodology' (Aug. 5, 2013).

Applicable Criteria and Related Research:
Rating Pharmaceutical Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684459
Corporate Rating Methodology -- Effective 12 August 2011 to 8 August 2012
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827546
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Contacts

Fitch Ratings
Primary Analyst:
Michael Zbinovec, +1-312-368-3164
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Bob Kirby, CFA, +1-312-368-3147
Director
or
Committee Chairperson:
Michael Weaver, +1-312-368-3156
Managing Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Michael Zbinovec, +1-312-368-3164
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Bob Kirby, CFA, +1-312-368-3147
Director
or
Committee Chairperson:
Michael Weaver, +1-312-368-3156
Managing Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com